Santander profit beats estimates as bank makes Brazil offer

MADRID – Banco Santander SA, Spain’s biggest bank, reported first-quarter profit that beat estimates on increased U.K. income and announced a 4.7 billion-euro ($6.5 billion) bid to buy out its Brazil unit.

Net income rose to 1.3 billion euros ($1.8 billion) from 1.21 billion euros ($1.7 billion) in the same period a year earlier, the Santander, Spain-based bank said in a filing to regulators today. That was more than the 1.23 billion-euro ($1.7 billion) average estimate in a Bloomberg survey of 11 analysts. In a separate filing, the bank offered to buy the 25 percent of its Brazilian unit that it doesn’t already own with new stock paying a 20 percent premium.

A buoyant economy and lower funding costs are driving revenue at Santander’s U.K. unit while faltering growth in Brazil has put pressure on profits from South America. As Spain climbs out of a six-year economic slump set off by a property crash, Chairman Emilio Botin told shareholders last month that Santander’s domestic business will help lead the bank back to pre-crisis profit levels of about 9 billion euros ($12.5 billion) in 2016.

“The results are mildly positive because of the improved top-line performance,” said Javier Bernat, an analyst at Beka Finance SV in Madrid, who rates the bank hold. “It’s a first sign of improved profitability.”

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Shares rise

Shares rose 0.6 percent to 7.09 euros at 9.09 a.m. in Madrid, extending gains this year to 9.1 percent and valuing the bank at 82 billion euros.

Santander would offer up to 665 million shares for the Brazil unit stake, an amount equivalent to about 5.8 percent of current capital, the bank said. It said the transaction would conclude in October this year.

Net interest income, the difference between what a bank earns from lending and pays for funding, rose to 6.99 billion euros in the first quarter from 6.93 billion euros in the fourth quarter as net lending rose 1.4 percent. The ratio of non-performing loans to total credit was 5.5 percent in March from 5.6 percent in December, the first time the measure has declined since the financial crisis erupted in 2007, Santander said.

Earnings from the U.K., a division run by Botin’s daughter Ana Patricia Botin, rose 68 percent from a year earlier to 376 million euros ($521 million) as net interest income climbed, the bank said. Lower funding costs and efforts to win market share in higher-yielding loans to small and mid-sized companies have helped Santander increase net interest income in the U.K.

Profit from Spain rose to 251 million euros ($348 million) from 203 million euros ($281 million) a year ago on improved net interest income, which climbed 4 percent from the fourth quarter, the bank said. Lending in Spain fell 11 percent from a year ago as the bad loans ratio for the unit rose to 7.6 percent from 7.5 percent in December.

Profit from Brazil fell 27 percent from a year earlier as net interest income fell, the bank said. Standard & Poor’s forecasts Brazil’s economy will expand 1.8 percent this year.